Time Warner Sees Double-Digit Fee Growth by 2016

Time Warner Inc chief financial officer John Martin said the programming giant would seek “aggressive” affiliate fee increases in the next three years, as its carriage deals with every major distributor roll off.

Martin, speaking at the Citigroup Global Internet, Media and Telecommunications conference in Las Vegas, said that Time Warner’s affiliate deals begin to expire in the middle of this year and that by the end of 2016 it would be out of contract with all of its distributors.

He added that the goal is to accelerate affiliate fee growth by double digits over the next three years.

“We fully intend to do that,” Martin said.

Martin’s comments come as distributors are grappling with whether to jettison underperforming networks. Time Warner Cable has been especially aggressive on this front – it recently dropped arts channel Ovation in part because its ratings did not jibe with the fee it was charging the MSO.

Time Warner networks have been consistent ratings juggernauts – the TNT and TBS networks were two of the top four cable networks in prime time last year and its premium channel Home Box Office is having one of its strongest periods in several years, he said.

Higher affiliate fees are part of a four-pronged approach to growth at Time Warner, which also includes boosting its international presence, increasing its subscription video on demand revenue and improving operational efficiencies.

Martin said that international accounts for about $3 billion in revenue and $650 million in operating income annually. Revenue at the international operations has increased at twice the pace of the domestic business. With “great scale” in Latin America and by rationalizing its other operations, Martin said he sees its $650 million in operating income rising to more than $1 billion in the next several years.

In SVOD, Time Warner recently inked a deal with Netflix for its Warner Brothers studio content and sees other opportunities down the road. SVOD revenue was about $250 million through the first nine months of 2012 and should finish the year at well above $300 million.

Time Warner is constantly looking at ways to improve operating efficiencies, Martin added and that practice will continue this year, but not by under investing in the business.